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IMF head: World faces 1930-type Depression

Dec. 16, 2011 at 3:30 AM   |   Comments

WASHINGTON, Dec. 16 (UPI) -- The world could plummet into a 1930s-style Depression unless all countries fix Europe's spiraling debt crisis together, the world's lender of last resort said.

"There is no economy in the world -- whether low-income countries, emerging markets, middle-income countries or super-advanced economies -- that will be immune to the crisis that we see not only unfolding but escalating," International Monetary Fund Managing Director Christine Lagarde said.

"It is not a crisis that will be resolved by one group of countries taking action," she said at the State Department in Washington. "It is going to be hopefully resolved by all countries, all regions, all categories of countries actually taking some action."

If the international community fails to come together as one, the risk is economic "retraction, rising protectionism, isolation," Lagarde said. "This is exactly the description of what happened in the 1930s, and what followed is not something we are looking forward to."

The 1930s Great Depression was followed by World War II.

The Depression, which began in the United States with the Oct. 29, 1929, stock market crash, devastated virtually every country's economy, rich and poor. Personal income, tax revenue, profits and prices dropped, while international trade plunged more than 50 percent.

U.S. unemployment rose to 25 percent and in some countries the jobless rate reached 33 percent.

Cities worldwide were ravaged, especially those dependent on heavy industry. Construction all but stopped in many countries. Farming and rural areas suffered as crop prices fell by 60 percent.

The 2012 global economic outlook "is quite gloomy," Lagarde said, pointing to sharply downward economic-growth trends and sharply rising government deficits, both far greater than economists forecast.

European countries -- "and in particular the countries of the eurozone, which are sharing this monetary union" -- have a responsibility to show leadership in fixing the crisis, she said.

But it can't stop there, she said, adding the IMF could help.

The fund could be responsible for "organizing a collective financial responsibility, a fiscal solidarity and that element of risk-sharing that is expected, pretty much, around the globe," Lagarde said.

The fund is an organization of 187 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth and reduce poverty worldwide.

An IMF plan, agreed at a European Union summit in Brussels last week, seeks $261 billion from European countries and will then seek money from the rest of the world.

© 2011 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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